California Payroll and Employment Taxes
What employers must know
California imposes unemployment insurance (UI), employment training tax (ETT), and state disability insurance (SDI) obligations on employers and employees. Candidates must understand wage reporting, the quarterly return process, and the wage base for each tax. Know that SDI is employee-funded and that UI and ETT are employer-funded.
Key concepts
Understand independent contractor versus employee classification under California law, including the ABC test. Know the rules on withholding, the EDD's role, and the penalties for late deposits and returns. Familiarize yourself with the interaction between California and federal payroll obligations.
Traps
Common traps: assuming the federal wage base equals the California wage base, and confusing which taxes the employee pays versus the employer. Questions may test whether an item is wages subject to withholding, and how the ABC test shifts the burden of proof.
Rule of thumb
If a worker is an employee under the ABC test, the employer owes UI and ETT, and the employee owes SDI withholding.
Worked example
A company misclassifies a worker as a contractor. Under the ABC test, the worker is likely an employee, so the company owes back UI and ETT contributions plus penalties, and must withhold SDI.